IRS Lowers Interest Rates for Taxpayers in Debt

September 12th

Interest can often be the most crippling part of owing back taxes. It can accrue to staggering proportions in remarkably little time, leaving taxpayers with colossal amounts of debt that can never be repaid.

Under tax code regulations, interest rates must be reviewed on a quarterly basis. Typically overpayment and underpayment interest rates for all taxpayers, except corporations, stand at the federal short-term rate plus three additional points. Corporate rates are usually the federal short-term rate plus three points for underpayment and the short-term rate plus two additional points for overpayment. However, this year, there is good news for taxpayers struggling with tax debt or unpaid taxes.

Tax Debtors Get A Break

Current news suggests that interest rates are about to be lowered for American taxpayers, both individual and corporate. The Internal Revenue Service announced last week that they have lowered interest rates for the fourth calendar quarter of 2011. This means that those owing back taxes will face less of a penalty and interest burden than they normally would.

The new interest rates are as follows:

Three percent interest on individual overpayments

Two percent interest on corporate overpayments

Three percent interest on most underpayments, except those owed by large corporations

Five percent interest for underpayments owed by large corporations

0.5 percent of any overpayment amount in excess of $10,000

The new interest rates have been computed in accordance with the federal short-term rate as it was calculated during July 2011. They are due to come into effect on October 1, 2011.